Thursday, April 28, 2011

As discussed in an earlier post, Flagstar Bank recently appealed two cases to the Ohio Supreme Court that Flagstar lost against appraisers at the trial court level based on Ohio's statute of limitations. Under Ohio law, the statute of limitations for most professional liability actions like those against appraisers is four years from -- basically -- the date of the appraisal. The law on this issue is very different in Ohio as compared to most other states.

Flagstar's argument in the appeal was essentially that the Ohio statute of limitations applicable to appraisers and similar professionals should be subject to the "discovery rule" -- meaning that the four-year statute of limitations period in which to sue an appraiser under Ohio law should start running from when Flagstar discovered the alleged appraisal problems and the full extent of its alleged damage, not from when the appraisal was delivered. The "discovery rule" is applied in most other states to these types of claims and it sometimes results in what is almost an unlimited statute of limitations period because lenders and other parties usually contend they never discovered the alleged flaw in an appraisal until years after the appraisal when a default or foreclosure has occurred.
The Ohio Supreme Court ruled yesterday in favor of appraisers. It affirmed the judgment against Flagstar in the principal case before the Court and affirmed that the four-year limitations period in Ohio begins to run when the appraisal is delivered. The Court's ruling is available here.

An interesting part of the Ohio Supreme Court's ruling is a discussion about how applying the discovery rule to appraisers would be unfair because it can result in effectively resetting the statute of limitations period every time a loan is sold:

In this case, accepting any suggestion that the statute of limitations be reset for each purchase of a mortgage loan because the purchaser’s damages may be delayed until some point in the future could lead to an unending statute of limitations. Given the volatile nature of the housing market in recent years, we believe that that position is inconsistent with the purposes of statutes of limitations: “(1) ensuring fairness to the defendant, (2) encouraging prompt prosecution of causes of action, (3) suppressing stale and fraudulent claims, and (4) avoiding the inconveniences engendered by delay—specifically, the difficulties of proof present in older cases.” Doe v. Archdiocese of Cincinnati,109 Ohio St.3d 491, 2006-Ohio-2625, 849 N.E.2d 268, ¶ 10.

This ruling is good news for Ohio appraisers, but appraisers outside Ohio should understand that the law in other states is very different than in Ohio and generally much less favorable. The Ohio Supreme Court ruling does not create any precedent for other states' courts to follow -- courts in other states might read it and consider the reasoning, but there is nothing binding about the case.

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Peter Christensen is an attorney and serves as LIA's general counsel. He previously practiced law with the law firms Latham & Watkins LLP and Irell & Manella LLP. He has a B.S. with an emphasis in accounting from U.C. Berkeley and also received his law degree from U.C. Berkeley (Boalt Hall School of Law). He's been a member of the California bar since 1993. He can be reached at peter@liability.com.Please read the important notice regarding this blog at the bottom of the page. Thank you.

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